Shift To Net Will Create Shortfall For Traditional Media

According to a new study by Forrester Research, Inc., a shift in advertising dollars to the Internet will create a $27 billion (US$) shortfall in traditional media spending by 2004.

While TV, radio and print media are currently enjoying a shot in the arm from fledging dot-coms trying to build up their markets, e-commerce is spurring the dramatic shift in ad revenue.

Presently, Forrester says that one-third, or 39 million U.S. households, are online, and an additional 5 million more will be added between 1999 and 2000. As these Web novices develop buying habits, dot-coms will continue to pump money in expensive offline campaigns to woo them.

Party Won’t Last

However, by 2004, the party will be over.

“Attracted by the direct selling on the Net, traditional marketers will shift $10 billion from traditional media spending to the Internet,” the report says. “For example, First USA plans to fund all of its portal deals — more than $500 million over the next five years — from traditional advertising budgets.”

Although this massive paradigm shift will be good news for small and heavyweight Web portals alike, it will create a severe deficit for offline media.

“At the same time that it steals dollars, the Internet will put a downward pressure on ad rates — especially as it shifts to performance-based ad buying,” the report explained. “A classified ad in a newspaper is many times more expensive than an online job listing — as those ads move online, the revenues will not be replaced. These pricing effects will amount to an $11 billion reduction by 2004.”

Boost For Interactive TV

What is devastating for traditional media will end up being a significant boost for interactive TV, Forrester predicts.

“Interactive television will siphon nearly $7 billion from traditional media — mainly print and television — primarily in the form of enhanced program guides and interactive ads,” the report states.

The Bottom Line?

Forrester expects that revenues will decrease by 18 percent for newspapers, 17 percent for direct mail and 11 percent for magazines, as traditional marketers aggressively shift spending over the next five years.

Meanwhile, television will lose only 5 percent, and radio only 3 percent, as these media still provide tremendous branding opportunities that cannot be replaced by the Internet, the report concludes.

A Possible Solution

Forrester suggests that rather than sit back and count nickels, old media should begin investing heavily into new Internet businesses via direct investments, promoting-for-equity deals, or newe-commerce startups — such as Hearst’s investments in shoppinge-tailer brandwise.com.

As a side note, the report also advises dot-coms to tone down their humorous and sometimes crass ad campaigns.

“Shock doesn’t necessary sell,” the report says. “Instead, ads should focus on the shopping experience.”